By Drazen Kozaric, Special Counsel on 05/07/2022 – [SOURCE]
In the recent Federal Court judgment in Ao Qing Investment Pty Ltd v 52 Lord St East Perth Pty Ltd [2022] FCA 743, the Federal Court considered two (competing) interlocutory applications filed by the Plaintiff and the Second Defendant under section 237 of the Corporations Act to bring proceedings on behalf and in the name of 52 Lord St East Perth Pty Ltd, the First Defendant.
The Plaintiff and the Second Defendant were the shareholders of the First Defendant. Both applications were opposed. The Court rejected the submissions by the counsel for the Second Defendant that granting both competing applications ‘would lead to a calamitous outcome’ that could not be reconciled with the best interest of the company. It determined that “the problem of conflicting objectives is rather illusory”, as pursuant to section 236 of the Corporations Act, the applicants will bring the proceedings, even though this will be on behalf of and in the company’s name. Therefore, the costs of these proceedings should be, at least in the first instance, be borne by the applicants. Regarding the question of whether or not the company would be Plaintiff and Defendant in the same proceeding, it cited Austin J in Power v Ekstein [2010] NSWSC 137, ‘[w]hen proceedings are already constituted and the company is a defendant, and derivative claims are to be added to the proceedings, the weight of authority indicates that the company may remain as a defendant’.
The Court further noted, in respect to the relevant criteria under section 237(2), namely whether there was a serious question to be tried, that the requirement is not a demanding one and the Court will not normally consider merits of the proposed actions to any great degree.
Take away: There is no conflict in granting opposing applications for leave to bring proceedings on behalf or in the name of a company under section 237 of the Act. Costs of any such proceedings will, at least initially, be borne by the applicants.
